Dena Owns Interests in Five Businesses and Has Full-Time Employees

question 48

Multiple Choice

Dena owns interests in five businesses and has full-time employees in each business. She participates for 100 hours in Activity A, 120 hours in Activity B, 130 hours in Activity C, 140 hours in Activity D, and 125 hours in Activity E.

• A) All five of Dena's activities are significant participation activities.
• B) Dena is a material participant with respect to all five activities.
• C) Dena is not a material participant in any of the activities.
• D) Dena is a material participant with respect to Activities B, C, D, and E.
• E) None of the above.

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Definitions:

Discount Rate

A rate of interest utilized within discounted cash flow evaluations to ascertain the present worth of forthcoming cash flows.

Decision Tree

A timeline representation used in planning projects subject to multiple outcomes. Wherever an event has several outcomes, the timeline branches into as many paths, each with a probability. The result is a proliferation of possible paths to completion, each representing an outcome, its financial implication, and its probability. Hence, the decision tree specifies a probability distribution for the project’s overall financial outcome.

NPV Profile

A graphical representation showing the relationship between the Net Present Value (NPV) of a project and various discount rates.

Certainty Equivalent NPV

A method that adjusts the net present value (NPV) of an investment by incorporating the decision maker's risk aversion, providing a risk-adjusted NPV under certainty.